Oil rose above $80 Monday on Middle East tensions while equities slid in New York as political and interest rate concerns dented the recent rally.
Brent North Sea crude, the international benchmark oil contract, went above $80 per barrel for the first time since late August.
Oil futures have experienced recent volatility, with Brent slumping under $70 last month on concerns about weak demand, before intensified fighting in the Middle East sent prices soaring 10 percent last week.
Israel is preparing its retaliation against Iran over its missile attack last week, raising fears of an all-out regional war that could involve strikes on oil facilities.
Beyond Middle East tensions, oil is also being supported by hopes of stronger Chinese demand after Beijing recently announced major stimulus measures to boost its flagging economy.
Offsetting price support is an expectation in the market that the OPEC+ group of oil producing nations could reverse output cuts, according to analysts.
– ‘Wild ride’ –
“The oil market is on a wild ride, caught in a whirlwind of geopolitical tension, OPEC+ strategy shifts, and a slowdown from its biggest customer, China,” noted independent analyst Stephen Innes.
The rising oil price and concerns about the Middle East put an end to a recent rally on world stock markets.
“Wall Street is on a four-week win streak but (is) under pressure from rising yields, a rally in crude oil, and a strong dollar amid geopolitical and inflation concerns,” said Joe Mazzola, a strategist at Charles Schwab.
European shares closed mixed with Frankfurt slipping and London and Paris gaining.
Major indices in New York retreated from gains made on Friday when a stronger-than-expected nonfarm jobs report showed the world’s largest economy is in good shape but clouded the outlook for further interest rate cuts from the Federal Reserve.
The figures led to “a sharp re-evaluation in the market’s forecasts for future Fed rate cuts”, said David Morrison, senior market analyst at Trade Nation.
Wall Street investors are now betting on a quarter-point interest rate cut by the US Federal Reserve, rather than a repeat of the aggressive 50-basis point cut made last month.
US inflation data due later this week will be closely watched for further clues on the Fed’s thinking heading into its next policy setting meeting.
Consumer prices will be reported Thursday with producer prices following on Friday.
Friday also sees the start of the third-quarter earnings season with a slew of banks and financial institutions being the first to report.
Expectations of a slower pace of interest rate cuts has bolstered the dollar.
“The market has largely abandoned hopes for a 50 basis point cut, and inflation figures probably won’t change that,” said Fawad Razaqzada, an analyst at FOREX.com.
Concerns over Europe’s biggest economy, Germany, weighed on Frankfurt’s stock market.
Official data showed Germany’s industrial orders fell more than expected in August, adding to fears that the country will end the year in recession.
London nudged higher thanks to the heavy weighting of oil companies in its main indexes.
Earlier, Tokyo and Hong Kong stock markets closed higher, with the former boosted by a softer yen supporting Japanese exporters.
Hong Kong extended a rally fuelled by China’s plans to boost its growth, notably by supporting its battered property sector and thanks to interest-rate cuts.
Shanghai was shut for a holiday.
– Key figures around 1545 GMT –
Brent North Sea Crude: UP 2.6 percent at $80.07 per barrel
West Texas Intermediate: UP 2.8 percent at $76.43 per barrel
New York – Dow: DOWN 0.4 percent at 42,199.90 points
New York – S&P 500: DOWN 0.3 percent at 5,736.17
New York – Nasdaq Composite: DOWN 0.3 percent at 18,081.00
London – FTSE 100: UP 0.3 percent at 8,303.62 (close)
Paris – CAC 40: UP 0.5 percent at 7,576.02 (close)
Frankfurt – DAX: DOWN 0.1 percent at 19,104.10 (close)
Tokyo – Nikkei 225: UP 1.8 percent at 39,332.74 (close)
Hong Kong – Hang Seng Index: UP 1.6 percent at 23,099.78 (close)
Shanghai – Composite: Closed for a holiday
Dollar/yen: DOWN at 148.04 from 148.64 yen on Friday
Pound/dollar: DOWN at $1.3081 from $1.3124
Euro/dollar: UP at $1.0979 from $1.0976
Euro/pound: UP at 83.93 pence from 83.62 pence
gv/cw
